Uber Dealt a Setback on Labor Rules

June 24, 2015

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California’s labor commissioner has ruled that a driver for
Uber Technologies Inc. should be classified as an employee of the company, a
decision that marks the latest setback for the ride-hailing company’s labor
model. The ruling doesn’t set a precedent for how Uber compensates its 200,000
drivers, but it is one of a growing number of court decisions that may have
far-reaching implications for the company. Uber says its drivers are
independent contractors and not employees, a designation that means it isn’t
responsible for paying drivers’ insurance or job-related expenses and allows
the company to operate and expand at relatively low cost.

Uber has been ordered to pay Barbara Berwick, a San
Francisco driver for Uber from July to September of last year, more than $4,100
to cover the costs of vehicle mileage and tolls, the commissioner said in a
June 3 ruling that was filed in California state court on Tuesday. The
regulator found that Uber is “involved in every aspect of the operation,” from
vetting drivers and their vehicles to setting rates for trip fares, and
therefore is legally an employer of its drivers. Uber had unsuccessfully argued
that because it is just a smartphone service that matches passengers with
rides, its drivers should be classified as contractors.

Uber said Wednesday it is appealing the ruling and pointed
to a 2012 labor commission ruling that found one of its drivers shouldn’t be
classified as an employee. The number one reason drivers choose to use Uber is
because they have complete flexibility and control. The labor commission
disputed that drivers control all aspects of their work, noting that, among
other things, passengers pay Uber for their rides and Uber, in turn, pays
drivers “a nonnegotiable service fee.”

Rulings by state agencies like the California Labor
Commission don’t set a formal precedent for court cases or other actions, said
Reuel Schiller, a law professor at University of California Hastings College of
the Law. But, should various federal or state entities determine that Uber
drivers are employees—whether for purposes of collecting unemployment insurance
or expense reimbursement.

The company could alter its contract with drivers, perhaps
tweaking it to fall just under the employee threshold on tests of drivers’
status. But that isn’t as easy as it sounds, said Jeff Hirsch, a
professor at the University of North Carolina School of Law. No ruling related
to a single company like Uber will be applied to all firms in the sharing
economy. Determining whether a worker is an employee is “a very fact-intensive
inquiry,” Mr. Schiller said, and so judges and agencies must base their
decisions on a company’s specific arrangements with workers.

Uber is fighting several lawsuits in California challenging
its ability to classify drivers as contractors. If the plaintiffs are
successful, the cases could help clarify a murky area of employment law and
force Uber to pay new costs to cover employee benefits and driving costs. The
decisions could also affect the valuations of companies in the so-called
on-demand economy. Uber is currently raising new funding at a $50 billion
valuation, The Wall Street Journal has reported.

Shannon Liss-Riordan, a plaintiffs’ attorney representing
Uber drivers in a class-action suit in federal court in San Francisco, called
Wednesday’s ruling significant and potentially helpful for her clients, since
it holds the company is required under California law to repay the driver’s
job-related costs.

Earlier this month, U.S. District Judge Edward Chen, in the
Northern District of California, allowed lawsuits by two drivers for Uber to
proceed in court, rebuffing the ride-sharing company’s attempt to resolve the
actions in closed arbitration proceedings. In March, Judge Chen and another San
Francisco judge issued similar rulings in two other cases involving Uber and
its rival Lyft Inc., focused on the employee-versus-contractor question.